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Unraveling the web's story

The crash that ended it all

The Crash

When the pieces began to fall in the early months of 2000, it happened quick. “It was the weak constitution of all those ‘iffy’ dot-coms that had hit the market toward the tail end of 1999 that tipped the scales,” Brian McCullough notes in his comprehensive account of the web’s commercial history, How The Internet Happened, companies he says, “without a realistic chance to make money over the long term.” As investors continued to flood the market with weaker and weaker websites, a slow trickle gave way to a waterfall in a matter of months.

In the second half of 2000, the stock market was in free-fall. One company after another folded. “It’s not a correction, it’s a crash,” declared one investment banker in the fall of 2000.

The Federal Reserve, an institution which had tried for years to encourage rapid growth through low interest rates, began to reverse course to stop the bleeding. Interest rates were raised several times in 2000 in an attempt to discourage investment growth, to the highest level they had been in a decade, well before the bull market began. But they couldn’t.

“The tech-heavy Nasdaq peaked on March 10, 2000,” one article about the crash notes, “From that March 2000 peak, all the way down to the trough it reached on October 9, 2002… the Nasdaq would lose nearly 80 percent of its value.” The stock market had become something like a game. And most of the players were going to walk away the losers.

Some dot-com sites took the spotlight more than others. Maybe the most notable was, famously backed by Amazon, , with a sock puppet spokeperson in serious legal trouble. Though was not much different than the overstuffed startups of the late ’90’s—Webvan, Kozmo, eToys, Value America—its collapse in November of 2000 was featured all over the media as a sign of dot-com exuberance and a precursor to the end.

The sock puppet in one of its infamous commercials from the dot-com era
If there’s one image that represents the dot-com crash, it is probably the sock puppet. co-founder Julie Wainright would later comment on the way everyone seemed obsessed with her company, especially in during the crash. What’s clear is that everyone was looking for who was to blame. And there was no shortage of answers, least of all of from the founders and employees of the dot-com sites themselves.

In the wake of the dot-com crash, in tell-all magazine articles and soul-search memoirs, many of those involved in the largest web companies began to tell their stories. There are dozens of books and hundreds of interviews and articles from the early 2000’s filed with confessions and half-truths from the era. Buried within them were the good intentions of founders who witnessed and were apart of the massive collapse. They had built websites they believed could change the world. Ultimately, they did, just not in the way they thought.

Beyond those motivations, was the role of the World Wide Web, which had been cast as both savior and curse. David Kuo, a PR executive who worked at the online retailer Value America summed up the dichotomy well in his own memoir. “We discovered that the prevailing wisdom was flawed. The Internet is a tremendous force for change, but the industry chews up more folks than it blesses.”

Kevin Kelly was Wired’s editor throughout the dot-com era, wrote the literal book on the paradigm shift of the New Economy and infamously predicted a decade-long, unbroken boom only months before the stock market began to crash. Just a few months after that prediction, Kelly pulled a 180 and de-emphasized the role of Internet commercialization as a mere side effect. “As the Internet continues to expand in volume and diversity, only a relatively small percent of its total mass will be money-making”, he explained in a startling reversal, “the rest will be created and maintained out of passion, enthusiasm, a sense of civic obligation, or simply on the faith that it may later provide some economic use.”

Many founders confessed to feelings of immense remorse for their role in the crash., which one Internet reporter at the time said “everyone cites as a train wreck,” was setup by Kajsa Leander and Ernst Malmsten in London in early 1999. It’s stated objective was to transform the online shopping experience into something personalized and tailored to users. It’s flagship feature was a virtual personal shopper, an illustration of a woman that followed you around the site and helped you make decisions about what to purchase.

Leander and Malmsten quickly set about raising hundreds of millions of dollars and bringing on hundreds of employees within a few months. They shipped feature after feature. They flew in a celebrity hair dresser to make sure their virtual avatar had hair that was just right. And over time, the site became saddled with overspending and underdelivering. was a site that tried to do much, and never quite succeeded

In a personal and conflicted memoir, Malmsten reflects on the day his company was forced to shut down. “They believed in boo’s future, they spent months of their lives working long days and nights, but now, because of my failure, they will get nothing in return… I think of all the money boo has burned through,” he wrote before, in a moment of clarity, grasping the actual point, “Not my money, I remind myself with a wave of guilt and shame.”

For Clay Shirky, the web’s transition to dot-com was inevitable, and disastrous. In Digital Hustlers, a collection of interviews with members of Silicon Alley, he comments on the loss of the web’s avant-garde corner as a wave of website startups transformed it into something something decidedly more commercial. “But [the web] was a weird place. It was our version of [Warhol’s] Factory. And when it closed, and when Word closed, and a lot of these places closed that had been stringing along—’Well, it’s the Internet, so it’s got to be profitable some day’—that to me was the end of an era.”

Stephan Paternot, co-founder of theGlobe, put it in a different way when it was his turn to publish a mea culpa. “I think the Internet’s own euphoria and hype became its own worst enemy. Our own spark became, in a sense, our own worst enemy. I think now everyone’s paying the consequence in the Internet space for what happens when too much floods in too fast.”

There is no shortage of stories about people’s adventures in the dot-com era. But they all lead to one thing: the end.

In 1999—the year before the crash—there were 380 companies that went public. In 2001, there were 80. Investors began to close their doors, and individual investors watched as their 401ks and portfolios got wiped away. The web, meanwhile, went back underground and widespread commercialization consolidated in the companies that were able to survive the crash—Amazon, eBay, and others.

“The reality was, for the first time ever, the stock market had become a giant game,” Paternot recalls in another section of his memoirs “Like some very serious, very compelling PlayStation game with these huge, real-world stakes.” During the rise of the dot-com companies, people had played the game, trying to get in and make money. But as things began to tumble, they began to play a new game. Try and guess which company would topple next.

To that end,, a site created by Philip Kaplan. Kaplan had bought into the dot-com dream. In the mid-90’s he worked for former MTV vee-jay Adam Curry (who had already made an early mark on the web) at his failed advertising venture, THINK. Venting his frustration of losing all of his promised fortune in the form of devalued stock options, Kaplan set up—”a dot-com deadpool”—for himself and a few friends.

Each month, five companies were picked for the deadpool. Points were awarded for things that tip the scale towards teh companie ultimate collapse, from “general bad news to minor layoffs to all-out corporate slayings.” Players took a ghoulish glee in trying to predict which comany would come next, as one by one started to collapse. was always filled with Schadenfreude-laden reprises

“We all look at these sites and wonder, ‘Well, how do they make money?’ And that’s the point — they don’t,” Kaplan would later say of his motivation. Indeed it felt as if one by one, more and more companies were being taken off the board.

The site offered something else as well. In the wake of the dot-com crash in 2000 and 2001, people lost their jobs, they lost their fortunes, and they lost their sense of direction. became an outlet for frustration and lost dreams. “Employees of troubled Internet companies used the site to vent their anger at their bosses (and their stock losses), whilke Kaplan, using the handle ‘Pud,’ kept up a sarcastic running commentary,” wrote John Cassidy in his recap of the dot-com era.

Even as the web collapsed, people turned to the web to lament and find support. The Internet was originally built to withstand a nuclear apocalypse. Surely it could outlast an economic downturn as well. The web would continue. But the dot-com era was over.

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